AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

 

Execution Copy

 

AGREEMENT AND PLAN OF MERGER

 

BY AND AMONG

 

NATIONAL FINANCIAL PARTNERS CORP.,

 

BLUE SKY ACQUISITION CORP.,

 

HIGHLAND CAPITAL HOLDING CORPORATION,

 

THE OTHER PARTIES NAMED HEREIN

 

and

 

for the purposes of Sections 1.10, 6.1(c), 6.1(e), 6.2(i), Article IX and Article X only,

 

W. TODD CARLISLE, KEITH D. DUKE and JOHN T. MULHERAN, as Representatives

 

March 9, 2005

TABLE OF CONTENTS

 

 

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INDEX OF DEFINED TERMS

 

 

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vi

 

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AGREEMENT AND PLAN OF MERGER

 

AGREEMENT AND PLAN OF MERGER (this “ Agreement ”), dated as of March 9, 2005, by and among NATIONAL FINANCIAL PARTNERS CORP. (formerly known as National Financial Services Company, Inc.), a Delaware corporation (“ NFP ”), Blue Sky Acquisition Corp., a Delaware corporation and wholly owned subsidiary of NFP (“ Subcorp ”), HIGHLAND CAPITAL HOLDING CORPORATION, a Delaware corporation (the “ Company ”), each of the holders of the Company Stock (as defined herein) listed on Exhibit A attached hereto (individually, a “ Specified Stockholder ” and collectively, the “ Specified Stockholders ”), and for the purposes of Sections 1.10 , 6.1(c) , 6.1(e) , 6.2(c) , 6.2(i) , Article IX and Article X hereof only, W. Todd Carlisle, Keith D. Duke and John T. Mulheran in their capacity as the Stockholders Representatives (collectively, the “ Representatives ”). This Agreement shall not become effective unless and until such time as NFP shall have received confirmation, satisfactory to it, that each of the Specified Stockholders have executed and delivered a Section 228 Consent and a Waiver (each as defined herein).

 

PRELIMINARY STATEMENTS

 

A. The Specified Stockholders, collectively, own of record and beneficially all of the outstanding shares of Company Preferred Stock, all of the outstanding Company Warrants and the shares of Company Common Stock listed next to the name of such Stockholder (as defined below) on Exhibit A, which represent in the aggregate 58.3% of the outstanding Company Common Stock.

 

B. NFP desires to combine its businesses with the businesses operated as of the date hereof by the Company and its subsidiaries and divisions (the “ Business ”) through the merger of Subcorp with and into the Company (the “ Merger ”), with the Company as the surviving corporation.

 

C. The respective Boards of Directors of NFP and Subcorp have each approved this Agreement, the Merger, and the related transactions contemplated hereby, upon the terms and subject to the conditions set forth herein.

 

D. The Board of Directors of the Company has recommended this Agreement to the Holders of the Company Stock for adoption, and contemporaneously herewith and as a condition to the willingness of NFP and Subcorp to enter into this Agreement and as a condition to the effectiveness of this Agreement, each of the Specified Stockholders, who together comprise (i) all Holders of each outstanding series of Company Preferred Stock and (ii) Holders of a majority of (A) the outstanding shares of Company Common Stock and (B) shares of Company Common Stock issuable upon conversion of the outstanding shares of Company Preferred Stock, have executed and delivered a written consent in the form attached hereto as Exhibit I (each, a “ Section 228 Consent ”), consenting to the adoption of this Agreement pursuant to Section 228 of the DGCL (as defined herein).

E. Pursuant to the Merger, among other things, and subject to the terms and conditions of this Agreement, (i) each issued and outstanding share of common stock, par value $0.001 per share, of the Company (“ Company Common Stock ”) shall, at the election of the holder thereof (individually, a “ Stockholder ” and collectively, the “ Stockholders ”, and together with the holders of the Company Preferred Stock (as defined below) (the “ Preferred Holders ”) and the holders of Company Options, the “ Holders ”), be converted into either shares of common stock, par value $0.10 per share, of NFP (the “ NFP Common Stock ”) or a combination of shares of NFP Common Stock and cash, (ii) each outstanding warrant for common stock of the Company (“ Company Warrants ”) shall be cancelled immediately prior to the Effective Time, (iii) each outstanding share of Series B Convertible Preferred Stock, Series C Convertible Preferred Stock, Series D Convertible Preferred Stock and Series E Convertible Preferred Stock (collectively, the “ Company Preferred Stock ”, and together with the Company Common Stock, the “ Company Stock ”) shall be converted into the right to receive cash, (iv) the secured promissory note issued to Robert E. Lee, trustee (the “ Lee Note ” ) shall be retired and repaid in full for cash or otherwise addressed in a manner satisfactory to NFP in its sole discretion, (v) each option for Company Common Stock, whether or not vested, shall become vested and exercisable upon execution and delivery of this Agreement and shall be cancelled at the Effective Time, and (vi) if the Business achieves certain target earnings growth, NFP shall pay to the Stockholders, in either cash or NFP Common Stock, specified additional consideration.

 

F. At the Effective Time, NFP will deposit into escrow the Escrowed Shares, Escrowed Cash and the Retail Settlement Proceeds Escrow Amount (each as defined herein), the release of which amount shall be contingent upon certain events and conditions, all as set forth in Sections 1.6 and 1.13 and Article VIII hereof and the Escrow Agreement.

 

G. Concurrent with the execution and delivery of this Agreement, (i) the Principals (as defined herein) have delivered to the Company duly executed counterparts to (A) a Management Agreement substantially in the form attached hereto as Exhibit B (the “ Management Agreement ”), (B) an Administrative Services Agreement (substantially in the form attached as Exhibit C to the Management Agreement) (the “ Administrative Services Agreement ”), (C) Lock-Up Agreements substantially in the form attached hereto as Exhibit C (individually, a “ Lock-Up Agreement ” and, collectively, the “ Lock-Up Agreements ”), and (D) Purchaser Questionnaires (as defined herein) and (ii) the other Specified Stockholders, to the extent they will be entitled to receive NFP Common Stock pursuant to this Agreement, have delivered to the Company duly executed counterparts to (A) Lock-Up Agreements and (B) Purchaser Questionnaires, and, in each case, the Management Agreement, Administrative Services Agreement and Lock-Up Agreements shall become effective upon the Closing.

 

H. As soon as practicable following the date hereof, the Company shall use its reasonable best efforts to obtain from the Holders not party to this Agreement such Holders’ consent to appoint the Representatives (as defined herein) as their Representatives and their agreement to certain provisions of the Agreement.

 

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I. As soon as practicable following the date hereof, the Company shall mail the Information Statement (as defined herein) and the applicable Transmittal Documents (as defined herein) to any Stockholders that have not executed the Section 228 Consent.

 

J. Concurrent with the execution and delivery of this Agreement, the Specified Stockholders designate W. Todd Carlisle, Keith D. Duke and John T. Mulheran, as Representatives.

 

K. Concurrent with the execution and delivery of this Agreement, the Preferred Holders designate Bingham McCutchen LLP, as counsel for the Preferred Holders (together with its advisors, “ Counsel for the Preferred Holders ”) and empower Counsel for the Preferred Holders to act on behalf of the Preferred Holders in connection with Section 1.13 hereof.

 

L. Upon consummation of the transactions contemplated pursuant to this Agreement, the Principals (as defined herein) shall receive a Principal Payment and a Cash Gross-up (each as defined herein), subject to the terms and conditions set forth herein.

 

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AGREEMENT

 

Now, therefore, in consideration of these premises and the mutual and dependent promises hereinafter set forth, the parties hereto agree as follows:

 

ARTICLE I

 

THE MERGER

 

1.1 The Merger. Upon the terms and subject to the conditions hereof, and in accordance with the provisions of the Delaware General Corporations Law (the “ DGCL ”), at the Effective Time, Subcorp shall be merged with and into the Company, whereupon, as a result of the Merger, the separate corporate existence of Subcorp shall cease, and the Company shall continue its existence under the laws of the State of Delaware. The Company in its capacity as the corporation surviving the Merger, is hereinafter sometimes referred to as the “ Surviving Corporation .”

 

1.2 Effective Time. Concurrently with the Closing, the parties shall cause the Merger to be consummated by filing with the Secretary of State of Delaware (the “ Secretary of State ”) a certificate of merger (the “ Certificate of Merger ”) in such form as is required by and duly executed in accordance with Section 251 of the DGCL. The Merger shall become effective (the “ Effective Time ”) when the Certificate of Merger has been filed with the Secretary of State or at such later time as is agreed by NFP and the Company and specified in the Certificate of Merger.

 

1.3 Closing.

 

(a) The closing of the Merger (the “ Closing ”) shall take place at the offices of NFP in New York, New York at 9:00 a.m. April 1, 2005, or if any conditions to Closing set forth in Article VI (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions) have not been satisfied or waived by the party entitled to the benefit thereof, then on the first Business Day (as defined below) of the month immediately following the month in which the last to be satisfied or waived of the conditions to the Closing set forth in Article VI (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions) shall be satisfied or waived in accordance with this Agreement, or at such other place and time or on such other date as NFP and the Company may agree in writing (the “ Closing Date ”). For purposses of this Agreement, “ Business Day ” means any day that is not a Saturday, Sunday or other day on which banks are required or authorized by law to be closed in the State of New York.

 

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1.4 Effects of the Merger.

 

(a) From and after the Effective Time, the Merger shall have the effects as provided for in this Agreement and the applicable provisions of the DGCL, including those set forth in Section 259 of the DGCL.

 

1.5 Conversion of Capital Stock/Merger Consideration. As of the Effective Time, by virtue of the Merger and without any action on the part of any party hereto or any Holder:

 

(a) Company Common Stock . Each issued and outstanding share of Company Common Stock (other than shares to be cancelled in accordance with Section 1.5(g) and Dissenting Shares) shall be converted, at the election of the holder thereof, in accordance with the procedures as set forth herein, into one of the following:

 

(i) for each such share of Company Common Stock with respect to which (i) a Stock Election has been effectively made pursuant to Section 1.9 or (ii) no election has been made pursuant to Section 1.9 , the right to receive:

 

(x) a number of shares of NFP Common Stock equal to (1) if the Twenty Day Average Price is equal to or between $32.73 and $44.29 (“ Within the Collar ”), .0323, (2) if the Twenty Day Average Price is greater than $44.29 (“ Above the Collar ”), the product of (A) the quotient of (i) $2.01 divided by (ii) the Twenty Day Average Price multiplied by (B) .71 or (3) if the Twenty Day Average Price is less than $32.73 (“ Below the Collar ”), the product of (A) the quotient of (i) $1.49 divided by (ii) the Twenty Day Average Price multiplied by (B) .71 (such number determined pursuant to subclauses (1), (2), or (3), as the case may be, the “ Stock Election Consideration ”);

 

(y) the pro rata share of any contingent merger consideration payable in accordance with Section 1.6(c) and the Escrow Agreement; and

 

(z) the pro rata share of any contingent consideration payable pursuant to Section 1.10 and allocable to such share of Company Common Stock.

 

(ii) for each such share of Company Common Stock with respect to which a Mixed Election has been effectively made pursuant to Section 1.9 , the right to receive:

 

(x) (i) the number of shares of NFP Common Stock equal to (1) if the Twenty Day Average Price is Within the Collar, .0162, (2) if the Twenty Day Average Price is Above the Collar, the product of (A) the Stock Election Consideration determined pursuant to Section 1.5(a)(i)(x)(2) multiplied by (B) .50 or (3) if the Twenty Day Average Price is Below the Collar, the product of (A) the Stock Election Consideration determined pursuant to Section 1.5(a)(i)(x)(3) multiplied by (B) .50 and (ii) an amount of cash equal to $.62125;

 

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(y) the pro rata share of any contingent merger consideration payable in accordance in Section 1.6(c) and the Escrow Agreement; and

 

(z) the pro rata share of any contingent consideration payable pursuant to Section 1.10 and allocable to such share of Company Common Stock.

 

(b) Company Preferred Stock . At the Effective Time, by virtue of the Merger and without any action on the part of any party hereto the $14,335,962.07 aggregate consideration to which the Preferred Holders shall be entitled shall be allocated among the shares of Company Preferred Stock through the following conversions:

 

(i) Each issued and outstanding share of Series B Preferred Stock shall be converted into the right to receive (x) an amount of cash equal to $.308734782 per share payable in immediately available funds at Closing upon surrender of certificates representing such holders’ shares of Series B Preferred Stock and (y) the pro rata share of any contingent merger consideration payable in accordance with Section 1.6(c) and the Escrow Agreement. The holders of shares of Series B Preferred Stock agree that the amounts distributable pursuant to this Section 1.5(b)(i) and any contingent merger consideration payable in accordance with Section 1.6(c) and the Escrow Agreement, if any, to such holder shall be the only amounts they are entitled to receive in respect of its shares of Series B Preferred Stock (including in redemption, liquidation or otherwise) and such holder waives any right to claim otherwise (whether in law or equity or otherwise).

 

(ii) Each issued and outstanding share of Series C Preferred Stock shall be converted into the right to receive (x) an amount of cash equal to $.523260585 per share payable in immediately available funds at Closing upon surrender of certificates representing such holders’ shares of Series C Preferred Stock and (y) the pro rata share of any contingent merger consideration payable in accordance with Section 1.6(c) and the Escrow Agreement. The holders of shares of Series C Preferred Stock agree that the amounts distributable pursuant to this Section 1.5(b)(ii) and any contingent merger consideration payable in accordance with Section 1.6(c) and the Escrow Agreement, if any, to such holder shall be the only amounts they are entitled to receive in respect of its shares of Series C Preferred Stock (including in redemption, liquidation or otherwise) and such holder waives any right to claim otherwise (whether in law or equity or otherwise).

 

(iii) Each issued and outstanding share of Series D Preferred Stock shall be converted into the right to receive (x) an amount of cash

 

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equal to $.53762606 per share payable in immediately available funds at Closing upon surrender of certificates representing such holders’ shares of Series D Preferred Stock and (y) the pro rata share of any contingent merger consideration payable in accordance with Section 1.6(c) and the Escrow Agreement. The holders of shares of Series D Preferred Stock agree that the amounts distributable pursuant to this Section 1.5(b)(iii) and any contingent merger consideration payable in accordance with Section 1.6(c) and the Escrow Agreement, if any, to such holder shall be the only amounts they are entitled to receive in respect of its shares of Series D Preferred Stock (including in redemption, liquidation or otherwise) and such holder waives any right to claim otherwise (whether in law or equity or otherwise).

 

(iv) Each issued and outstanding share of Series E Preferred Stock shall be converted into the right to receive (x) an amount of cash equal to $1.0620507 per share payable in immediately available funds at Closing upon surrender of certificates representing such holders’ shares of Series E Preferred Stock and (y) the pro rata share of any contingent merger consideration payable in accordance with Section 1.6(c) and the Escrow Agreement. The holders of shares of Series E Preferred Stock agree that the amounts distributable pursuant to this Section 1.5(b)(iv) and any contingent merger consideration payable in accordance with Section 1.6(c) and the Escrow Agreement, if any, to such holder shall be the only amounts they are entitled to receive in respect of its shares of Series E Preferred Stock (including in redemption, liquidation or otherwise) and such holder waives any right to claim otherwise (whether in law or equity or otherwise).

 

(c) Warrants . Each Warrant to acquire shares of the Company Common Stock that is outstanding immediately prior to the Effective Time, whether or not then exercisable, shall, effective as of the Effective Time, be cancelled without payment of any consideration. The holders of Warrants hereby consent to such cancellation and agree that they shall not be entitled to any consideration in respect of such Warrants and such holder waives any right to claim otherwise (whether in law or equity or otherwise).

 

(d) Stock Options . The term “ Company Options ” shall mean all options to purchase Company Common Stock granted under any stock option or stock compensation plan, program, agreement or arrangement of the Company (collectively, the “ Stock Plans ”), whether or not vested and exercisable, which are outstanding immediately prior to the Effective Time and which are held by any current or former employee or director of the Company or any of its subsidiaries (collectively, the “ Optionholders ” and each an “ Optionholder ”).

 

(i) Each Company Option will become immediately vested and exercisable as of the date hereof and, to the extent not exercised prior to the Effective Time, shall be cancelled as of the Effective Time, and each Optionholder shall be entitled to receive (x) in consideration therefor in immediately available funds, an amount of cash equal to the product of (A) the excess, if any, of (x) $1.75 minus (y) the per share exercise price of such Company Option multiplied by (B) the number of option shares covered by Option

 

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(ii) The Board of Directors of the Company (or the appropriate committee thereof) shall take all action necessary or appropriate under the Stock Plans to effectuate the foregoing treatment of Options in connection with the transaction contemplated hereby and the Company shall cause each of the Stock Plans to be terminated effective as of the Closing. As a condition to receipt of the consideration to which such Optionholder is entitled in consideration of any Option at the Effective Time, such Optionholder shall execute an acknowledgment, in form and substance satisfactory to the Company and NFP, that such consideration is the only consideration to which such Optionholder is entitled by virtue of ownership of such Option.

 

(e) Capital Stock of the Company . At the Effective Time, by virtue of the Merger and without any action on the part of NFP, Subcorp or the Company each share of Company Common Stock issued and outstanding immediately prior to the Effective Time shall thereafter constitute all of the issued and outstanding capital stock of the Surviving Corporation.

 

(f) Fractional Shares . No fractional share of NFP Common Stock shall be issued in the Merger. In lieu thereof, each holder of shares of Company Common Stock who would otherwise be entitled to a fraction of a share of NFP Common Stock (after aggregating all fractional shares of NFP Common Stock that otherwise would be received by such holder) will be entitled to receive, from the Exchange Agent in accordance with the provisions of this Section 1.5(f) , an amount of cash (rounded to the nearest whole cent), without interest, equal to the product of (i) such fraction, multiplied by (ii) the Twenty Day Average Price.

 

(g) Cancellation of Treasury Stock and NFP Owned Stock . All shares of Company capital stock that are owned by the Company as treasury stock, if any, shall be canceled and retired and shall cease to exist and no Merger Consideration (or any other consideration) shall be delivered in exchange therefor.

 

(h) No Further Ownership Rights in Common Stock of the Company . The shares of NFP Common Stock issued, or any cash paid pursuant to this Section 1.5 upon conversion of Company Common Stock and Company Preferred Stock or payment of Options, in accordance with the terms of this Section 1.5 , shall be deemed to be full satisfaction of all rights pertaining to shares of Company Common Stock, Company Preferred Stock, Company Warrants and Company Options outstanding prior to the Effective Time, and there shall be no further registration of transfers on the records of NFP of shares of Company Common Stock, Company Preferred Stock, Warrants or Options that were outstanding prior to the Effective Time. If, after the Effective Time, certificates are presented to NFP for any reason, they shall be canceled and exchanged as provided in this Article I.

 

(i) Merger Consideration . The aggregate amount of stock and cash received by the Holders in paragraphs (a) – (d) above shall be the “ Merger Consideration .”

 

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(j) As used herein, the term “ Trading Day ” means any day which NFP Common Stock is traded on the New York Stock Exchange.

 

(k) As used herein, the term “ Twenty Day Average Price ” shall mean the average closing trading price, as reported by Dow Jones (or its successor corporation), per share of NFP Common Stock for the twenty (20) consecutive Trading Days ending on, and including, the second Trading Day prior to the Closing Date.

 

1.6 Contingent Merger Consideration; Escrow Account.

 

(a) Deposit to Escrow . At the Effective Time, NFP shall deposit the number of shares of NFP Common Stock comprising the Escrowed Shares and the Escrowed Cash (collectively, the “ Escrow Amount ”) with the Escrow Agent into an escrow account (the “ Escrow Account ”) established pursuant to the terms and conditions of an escrow agreement substantially in the form of Exhibit D hereto (the “ Escrow Agreement ”) to provide for the payments to NFP of any amounts that become due to NFP under Section 8.1(a) of this Agreement. The Bank of New York shall serve as the escrow agent (the “ Escrow Agent ”) for the Escrow Agreement.

 

(b) Allocation of Escrow Amount . The Escrowed Shares and Escrowed Cash so deposited shall be allocated into two separate subaccounts which shall be separately monitored and administered by the Escrow Agent in accordance with the terms hereof and the Escrow Agreement, as follows: (i) an amount equal to 43% of each of the Escrowed Shares and Escrowed Cash shall be deposited into a subaccount referred to herein as the “ General Escrow ” and (ii) an amount equal to 57% of each of the Escrowed Shares and Escrowed Cash shall be deposited into a subaccount referred to herein as the “ Special Tax Escrow ”.

 

(c) Distribution of Escrow Amount upon Expiration . The Escrow Amount shall, subject to the terms of the Escrow Agreement, be held in the Escrow Account and (i) any Escrowed Shares and/or Escrowed Cash, as the case may be, remaining in the General Escrow and/or the Special Tax Escrow, if any, shall be distributed to the Holders entitled thereto upon the second anniversary of the Closing Date and the third anniversary of the Closing Date, as follows:

 

(i) Release of Escrowed Cash :

 

(1) Preferred Stock : The aggregate amount of cash, if any, to be paid to the Preferred Holders as contingent merger consideration shall equal a percentage (the “ Preferred Stock Percentage ”) of the Escrowed Cash remaining in the General Escrow or the Special Tax Escrow, as the case may be, for distribution (such remaining amounts, as applicable, the “ Distributable Amount ”). The “ Preferred Stock Percentage ” shall equal (A) $2,100,000 divided by (B) the total Escrowed Cash deposited at Closing pursuant to Section 1.6(f) multiplied by (C) 100. Each Preferred Holder shall receive an amount of cash equal to each such Holder’s pro rata portion of the $2,100,000 determined as of the Closing.

 

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(2) Common Stock : Each holder of Company Common Stock as to which a Mixed Election was made pursuant to Section 1.9 , shall receive, with respect to each such share, as contingent merger consideration an amount of cash, if any, equal to (x) the Common Escrow Percentage of the Distributable Amount divided by (y) the total number of shares of Company Common Stock as to which a Mixed Election was made. The “ Common Escrow Percentage ” shall equal (A) the aggregate amount of Escrowed Cash deposited at Closing pursuant to Section 1.6(a) minus $2,100,000 divided by (B) the total Escrowed Cash deposited at Closing pursuant to Section 1.6(a) and determined pursuant to Section 1.6(f) multiplied by (C)100.

 

(ii) Release of Escrowed Shares.

 

(1) Stock Election : Each holder of Company Common Stock as to which a Stock Election or no election was made pursuant to Section 1.9 , shall receive, with respect to each such share, as contingent merger consideration the total number of shares of NFP Common Stock, if any, equal to (x) the Stock Election Percentage of the Escrowed Shares remaining in the General Escrow or the Special Tax Escrow, as the case may be, for distribution (each such remaining amounts, as applicable, the “ Distributable Shares ”) divided by (y) the aggregate number of shares of Company Common Stock as to which a Stock Election or no election was made pursuant to Section 1.9 . The term “ Stock Election Percentage ” shall equal (A) the aggregate number of shares of Company Common Stock as to which a Stock Election or no election was made pursuant to Section 1.9 and was deposited at Closing pursuant to Section 1.6(a) and determined pursuant to Section 1.6(e) divided by (B) the sum of (i) the aggregate number of shares of Company Common Stock as to which a Stock Election or no election was made pursuant to Section 1.9 and (ii) .50 multiplied by the aggregate number of shares as to which a Mixed Election was made (such sum, the “ Total Company Share Amount ”) multiplied by (C) 100.

 

(2) Mixed Election . Each holder of Company Common Stock as to which a mixed election was made pursuant to Section 1.9 , shall receive, with respect to each such share, as contingent merger consideration the total number of shares of NFP Common Stock, if any, equal to (x) the Mixed Election Percentage of the Distributable Shares divided by (y) the aggregate number of shares of Company Common Stock as to which a Mixed Election was made pursuant to Section 1.9 . The term “ Mixed Election Percentage ” shall equal (A) 0.50 times the aggregate number of shares of Company Common Stock as to which a mixed election was made pursuant to Section 1.9 and was deposited at Closing pursuant to Section 1.6(a) and determined pursuant to Section 1.6(e) divided by (B) the Total Company Share Amount multiplied by (C) 100.

 

(d) Distributions of Escrow Amount to NFP; Indemnification . Other than any distributions owed to the Holders in accordance with the terms of the Escrow Agreement as described above, the Escrow Amount will be available solely to satisfy amounts owed to NFP pursuant to Section 8.1(a) of this Agreement to the extent set forth in such Section, and to satisfy cash amounts owed to the Escrow Agent in accordance with the terms of the Escrow Agreement.

 

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The applicable subaccounts of the Escrow Account shall be the sole source of funds available to satisfy amounts owed to the NFP Indemnified Parties (other than the Retail Settlement Proceeds Escrow Amount (as described in Section 1.13 hereof) which shall be available solely for the purposes described in Section 1.13 hereof and to the extent provided for therein). To the extent NFP is entitled to indemnification out of the Escrowed Shares or the Escrowed Cash pursuant to Section 8.1(a) of this Agreement and subject to the conditions and limitations therein, NFP shall set off and apply against Indemnified Damages the Escrowed Shares and Escrowed Cash in accordance with the terms hereof and of the Escrow Agreement. Pursuant to the terms of the Escrow Agreement, the Escrowed Shares will be valued for purposes of set off against any Indemnified Damages at the average closing trading price, as reported by Dow Jones (or its successor corporation), per share of NFP Common Stock for the twenty (20) consecutive Trading Days ending on, and including, the Trading Day prior to the date of payment.

 

(e) Escrowed Shares Determination . The term “ Escrowed Shares ” shall mean a number of shares of NFP Common Stock equal to: (1) if the Twenty Day Average is Within the Collar, the sum of (A) .0132 multiplied by the number of shares of Company Common Stock for which a Stock Election or no election has been made pursuant to Section 1.9 (excluding Dissenting Shares) plus (B) .0066 multiplied by the number of shares of Company Common Stock for which a Mixed Election has been made pursuant to Section 1.9 ; or (2) if the Twenty Day Average is Above the Collar, the sum of (A) the product of (x) the quotient of (i) $2.01 divided by (ii) the Twenty Day Average Price multiplied by (y) .29 multiplied by (z) by the number of shares of Company Common Stock for which a Stock Election or no election has been made pursuant to Section 1.9 (excluding Dissenting Shares) plus (B) the product of (x) the amount determined in Section 1.6(e)(2)(A) (without giving effect to clause (z) in such calculation) multiplied by (y) .50 multiplied by (z) the number of shares of Company Common Stock for which a Mixed Election has been made pursuant to Section 1.9 ; or (3) if the Twenty Day Average is Below the Collar, the sum of (A) the product of (x) the quotient of (i) $1.49 divided by (ii) the Twenty Day Average Price multiplied by (y) .29 multiplied by (z) by the number of shares of Company Common Stock for which a Stock Election or no election has been made pursuant to Section 1.9 (excluding Dissenting Shares) plus (B) the product of (x) the amount determined in Section 1.6(e)(3)(A) (without giving effect to clause (z) in such calculation) multiplied by (y) .50 multiplied by (z) the number of shares of Company Common Stock for which a Mixed Election has been made pursuant to Section 1.9 .

 

(f) Escrowed Cash Determination . The term “ Escrowed Cash ” shall mean an amount of cash equal to the sum of (A) $.25375 multiplied by the number of shares of Company Common Stock for which a Mixed Election has been made pursuant to Section 1.9 plus (B) $2,100,000.

 

1.7 Cancellation of Indebtedness. As of the Effective Time, the Company shall subject to the proviso to this sentence repay the Lee Note for $6,908,099.93 (the “ Lee Note Payment Amount ”), such that immediately following the Effective Time such indebtedness shall be repaid in full and terminated; provided that NFP may, at its own option and discretion, provide that the Lee Note be addressed in a manner other than as set forth in this Section 1.7 (it being understood that NFP is under no obligation to do so and this proviso in no way limits the

 

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Company’s obligations in the foregoing sentence absent any written notice that NFP has elected to treat the Lee Note in a manner other than as set forth in the foregoing sentence). On the Closing Date, following receipt by NFP of evidence in form and substance satisfactory to NFP of the items described in Section 6.2(d) and Section 6.2(e) , the Lee Note shall be cancelled and repaid in full. At or immediately prior to Closing, NFP shall deliver or cause to be delivered to the Company by wire transfer in immediately available funds to an account or accounts designated by the Company an amount equal to the Lee Note Payment Amounts such that at or immediately prior to the Closing the Company shall deliver or cause to be delivered to the holders of the Lee Note, such holder’s applicable portion of the Lee Note Payment Amount, as determined pursuant to this Section 1.7 , by wire transfer of immediately available funds to the account(s) designated by such holders of the Lee Note, such account(s) to be designated by such holders at least two (2) Business Days prior to the Closing. The holders of the Lee Note agree that the amounts distributable pursuant to Section 1.7 in respect of such Lee Note shall be in full satisfaction of all amounts outstanding thereunder and such holders waive any rights to claim otherwise (whether in law or equity or otherwise).

 

1.8 Exchange of Certificates.

 

(a) Exchange Agent . Mellon Investor Services (or another exchange agent reasonably acceptable to NFP) shall serve as the exchange agent (the “ Exchange Agent ”).

 

(b) NFP to Provide Merger Consideration . At the Effective Time, NFP shall make available to the Exchange Agent for exchange in accordance with this Article I : (i) certificates (or other appropriate documentation of book-entry ownership as applicable) representing the shares of NFP Common Stock issuable, pursuant to Section 1.5 , to holders of Company Common Stock (ii) cash to fund payment, pursuant to Section 1.5 , to holders of Company Common Stock who made a Mixed Election, (iii) cash to fund payment, pursuant to Section 1.5 , to the Preferred Holders and (iv) cash to fund payment, pursuant to Section 1.5 , to holders of Company Options. NFP Common Stock issuable as Merger Consideration pursuant to this Agreement, may, at the option of NFP, be in book-entry form.

 

(c) Common Stock Exchange Procedures . As soon as reasonably practicable after the date hereof, the Company shall mail to, or cause to be mailed to, in connection with the mailing of the Information Statement pursuant to Section 5.2(d) hereof, (1) (x) each person who, as of the date hereof, is a record holder of Company Common Stock and (y) each person who after the date hereof becomes a record holder of Company Common Stock: (i) a letter of transmittal and instructions, substantially in the form of Exhibit F (a “ Letter of Transmittal/Form of Election ”), for use in effecting the surrender of the certificates that formerly represented Company Common Stock (together with the certificates formerly representing Company Preferred Stock, the “ Company Certificates ”) for the Merger Consideration to which such Stockholders are entitled and pursuant to which an Election may be made as described in Section 1.9(a) hereof; and (2) (x) each person, other than any Specified Stockholder, who, as of the date hereof, is a record holder of Company Common Stock and (y) each person who after the date hereof becomes a record holder of Company Common Stock: (i) a Section 228 Consent pursuant to which such stockholder may adopt this Agreement by written consent, (ii) a waiver, substantially

 

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in the form of Exhibit G (a “ Waiver ”), waiving such Stockholder’s appraisal rights under Section 262 of the DGCL (“ Section 262 ”), (iii) a Lock-Up Agreement and (iv) a purchaser questionnaire, substantially in the form attached hereto as Exhibit H , which states that such Holder receiving shares of NFP Common Stock, either alone or with the Purchaser Representative has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment in NFP Common Stock (each a “ Purchaser Questionnaire ” and together with the Letter of Transmittal/Form of Election, Waiver and Lock-Up Agreement, collectively, the “ Transmittal Documents ”). Upon the later to occur of the Effective Time and surrender of a Company Certificate for cancellation to the Exchange Agent, together with the applicable duly executed Letter of Transmittal/Form of Election properly completed in accordance with the instructions thereto, the holder of such Company Certificate shall be entitled to receive in exchange therefor the applicable portion of Merger Consideration for each share of Company Common Stock formerly represented by such Company Certificate, and the Company Certificate so surrendered shall be forthwith cancelled. The Exchange Agent shall promptly accept such Company Certificates upon compliance with such reasonable terms and conditions as the Exchange Agent may impose to effect an orderly exchange thereof in accordance with customary exchange practices. No interest shall accrue on the Merger Consideration (or the cash payable as described in Section 1.5(f) ) payable upon the surrender of the Company Certificates for the benefit of, or be paid to, the holders of the Company Certificates. Until delivery to the Exchange Agent of the requisite instruments of surrender, each outstanding share of Company Common Stock will be deemed for all purposes, to evidence only the ownership of its respective portion of the Merger Consideration into which such Company Common Stock is entitled to be so converted. Once executed and delivered, Transmittal Documents may not be revoked without the consent of NFP.

 

(d) Preferred Stock Exchange Procedures . Not less than two (2) Business Days prior to the scheduled Effective Time, Holders of Preferred Stock shall (i) surrender the Company Certificates representing such shares to the Exchange Agent together with a Letter of Transmittal/Form of Election with respect thereto and (ii) provide wire instructions providing information as to the account or accounts into which the Merger Consideration in respect of such shares may be paid at the Effective Time. Upon the later to occur of the Effective Time and the date of the surrender of such Company Certificates, NFP shall pay into the account so specified, by wire transfer of immediately available funds, the Merger Consideration to which such Holders are entitled.

 

(e) Transfers of Ownership . If any shares of NFP Common Stock or cash is to be paid in a name other than that in which a Company Certificate surrendered in exchange therefor is registered, it will be a condition of the payment thereof that the person requesting such exchange will have paid to NFP or any agent designated by it any transfer or other taxes required by reason of the payment of the applicable Merger Consideration in any name other than that of the registered holder of the Company Certificate surrendered, or established to the satisfaction of NFP or any agent designated by it that such tax has been paid or is not payable.

 

(f) No Liability . Notwithstanding anything to the contrary in this Section 1.8 , neither NFP nor any party hereto shall be liable to a Holder for any amount properly paid to

 

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a public official pursuant to any applicable abandoned property, escheat or similar law. In addition, in the event that any Holder shall not have received payment by the Exchange Agent within twelve (12) months following the Effective Time, then the Exchange Agent shall return such amounts to NFP. After the end of such twelve (12) month period, any Holder who has not theretofore delivered or surrendered such holder’s Company certificate(s) to the Exchange Agent (as provided in this Section 1.8 ), subject to applicable law, shall look as a general creditor only to NFP for payment of such holder’s entitlement to its respective portion of the Merger Consideration. Any portion of the Merger Consideration remaining unclaimed by the Holders four years after the Effective Time (or such earlier date which is immediately prior to such time as such amounts would otherwise escheat to or become property of any Governmental Authority) shall, to the extent permitted by applicable law, become the property of NFP free and clear of any claims or interest of any person previously entitled thereto.

 

(g) Lost, Stolen or Destroyed Certificates . If any Company Certificate shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Company Certificate, upon the making of an affidavit of that fact by the holder thereof in a form acceptable to NFP or the Exchange Agent, such amount of Merger Consideration as may be required by this Article I hereof; provided , however , that NFP may in its discretion and as a condition to the issuance thereof, require the holder who is the owner of such lost, stolen or destroyed Company Certificate to deliver a bond in such amount as it may reasonably direct against any claim that may be made against NFP or the Exchange Agent with respect to the Company Certificate alleged to have been lost, stolen or destroyed.

 

(h) Investments. At NFP’s sole discretion, the Exchange Agent shall invest any cash deposited (in accordance with this Article I) with the Exchange Agent. Any interest and other income resulting from such investments shall be paid to NFP or its designee. Nothing contained in this Section 1.8(h) shall relieve NFP or the Exchange Agent from making the payments required by this Article I to be made to the Holders.

 

(i) Distributions With Respect to Unexchanged Company Certificates . No dividends or other distributions with respect to NFP Common Stock with a record date on or after the Effective Time shall be paid to the holder of any unsurrendered Company Certificate with respect to the shares of NFP Common Stock they are entitled to receive as Merger Consideration until such Company Certificate has been surrendered by such holder.

 

(j) Transfer Taxes; Withholding Rights. NFP or the Exchange Agent shall be entitled to deduct and withhold from (i) the Merger Consideration otherwise payable pursuant to this Agreement to any holder of shares of Company Common Stock, Company Preferred Stock or Company Options and (ii) the Principal Payments and Cash Gross-Ups otherwise payable to the Principals such amounts as NFP or the Exchange Agent are required to deduct and withhold under the Internal Revenue Code of 1986 (as amended, the “ Code ”), or any provision of state, local or foreign Tax law, with respect to the making of such payment. To the extent that amounts are so withheld by NFP or the Exchange Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of shares of Company Common Stock, Company Warrants, Company Preferred Stock or Company Options in respect of whom such deduction and withholding was made by NFP or the Exchange Agent.

 

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1.9 Election.

 

(a) Each record holder of shares of Company Common Stock (“ Election Securities ”) shall have the right, with respect to its applicable portion of Merger Consideration, to submit a Letter of Transmittal/Form of Election specifying that such person desires to elect to receive, with respect to all Election Securities beneficially held by such record holder, (i) only NFP Common Stock for such Election Securities, in accordance with Section 1.5(a)(i) (a “ Stock Election ”) or (ii) both cash and NFP Common Stock for such Election Securities, in accordance with Section 1.5(a)(ii) (a “ Mixed Election ”). The Stock Election and the Mixed Election are collectively referred to herein as the “ Elections ”). The Letter of Transmittal/Form of Election providing for such election must be received by the Company prior to 10:00 a.m. New York City time on the date that is five (5) Business Days prior to the anticipated Closing Date in order for the election covering such shares to be effective (the “ Election Deadline ”); it being further understood that no Elections may be made following the Election Deadline. In the event that a holder of Company Common Stock fails to make a timely Election, such Stockholder shall for all purposes of this Agreement be deemed to have made a Stock Election. If the Closing is delayed, the Election Deadline shall not, unless NFP determines otherwise (in its sole discretion), be delayed. Once delivered to the Company, the Letter of Transmittal/Form of Election and the Election related thereto may not be revoked. The Exchange Agent shall act as the agent for the holders of Election Securities for the purpose of receiving and holding their Forms of Election and Company Certificates and shall obtain no rights or interests (beneficial or otherwise) in such securities.

 

1.10 Contingent Consideration.

 

(a) Payment Amount . If the Business achieves the target Applicable Earnings or Retained Share of Applicable Earning of the Business on the terms set forth below, the Exchange Agent shall pay to the holders of Company Common Stock (other than Dissenting Shares) immediately prior to the Effective Time (the “ Earn-Out Recipients ”) the specified additional merger consideration (the “ Earn-Out Payment ”) out of the Earn-Out Payment Fund. The Earn-out Payment may be made in either cash or NFP Common Stock, or a combination thereof, which form of payment shall be determined at the sole discretion of NFP. The Earn-Out Payment, if any, shall be (i) made within forty-five (45) days following the completion of the first full twelve (12) fiscal quarters of the Business commencing with the first full fiscal quarter after the Effective Date (the “ Three Year Period ”) and payable at such time pro-rata to the Earn-Out Recipients. In the event that the aggregate Base Amount and Target Earnings are not revised during the Three Year Period in accordance with the terms of the Management Agreement, the Earn-Out Payment will, subject to the proviso below, equal the lesser of (x) the applicable Earn-Out Payment Amount corresponding to the aggregate growth of Applicable Earnings of the Business during the Three-Year Period following the Closing (see “ Applicable Earnings Chart ” below) and (y) the applicable Earn-Out Payment Amount corresponding to the aggregate growth of NFP’s Retained Share of Applicable Earnings of the Business during the Three-Year Period

 

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following the Closing (see “ Retained Share of Applicable Earnings Chart ” below) in accordance with the following:

 

Applicable Earnings Chart

 

 

Retained Share of Applicable Earnings Chart

 

 

; provided , that, in the event that either (i) the Applicable Earnings of the Business during the Three-Year Period is less than $47,760,818 or (ii) NFP’s Retained Share of Applicable Earnings of the Business is less than $22,355,740 during the Three-Year Period, then the Earn-Out Payment shall equal $0; and provided , further , that if the Representatives object to the Earn-Out Statement in the manner provided in Section 1.10(c) and the amount of the Earn-Out Payment Amount is subsequently determined to be greater than that set forth in such Earn-Out Statement, within five business days after such determination NFP shall deliver such incremental Earn-Out Payment Amount in accordance with Section 1.10(c) , together with interest thereon calculated in the manner provided in Section 1.10(d) .

 

The calculation of the Applicable Earnings of the Business and NFP Retained Share of Applicable Earnings shall not be reduced by any expenses incurred as a result of NFP merging other businesses or operations into Highland Capital Brokerage, Inc. unless such action is taken with prior written approval of the Representatives which shall not be unreasonably withheld. In the event that NFP shall have merged other businesses or operations into Highland Capital Brokerage, Inc. as provided in the foregoing sentence, NFP and the Representatives shall take such actions necessary to amend this Section 1.10 such that the calculations of Applicable Earnings of the Business and Retained Share of Applicable Earnings take into account such additional corporate overhead and other administrative expenses as a result thereof.

 

“ Applicable Earnings of the Business ” shall mean the excess of (1) the aggregate Applicable Earnings of each Brokerage Office (as determined pursuant to the Management Agreement in accordance with the Accounting Principles attached thereto) over (2) any expenses incurred by the Company (also determined in accordance with the Accounting Principles); provided , that , the

 

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Applicable Earnings of the Business shall be net of (1) any administrative or other expenses incurred by Highland at the corporate level and (2) any allocation of expenses for shares services of Highland brokerage; provided , further , that the expenses set forth on Exhibit J attached hereto shall be disregarded and shall not be deemed to be expenses for any purposes in calculating the Applicable Earnings of the Business. “ NFP Retained Share of Applicable Earnings ” shall mean the excess of (i) the Applicable Earnings of the Business over (ii) the aggregate Management Fees (as defined in the Management Agreement) paid by NFP to the Management Companies of the Business.

 

Notwithstanding, and in lieu of, the determination of the Earn-Out Payment provided above, in the event that the aggregate Base Amount and Target Earnings are revised during the Three Year Period in accordance with the terms of the Management Agreement, then the Earn-Out Payment will equal:

 

(1) .375 multiplied by the Adjusted Base Amount if (A) the average of the Applicable Earnings of the Business during the Three Year Period is (x) equal to or greater than an amount equal to a 10% per year compounded annual growth rate during the Three Year Period in excess of Adjusted Target Earnings, and (y) less than an amount equal to a 15% per year compounded annual growth rate during the Three Year Period in excess of Adjusted Target Earnings; and (B) the average of the NFP Retained Share of Applicable Earnings during the Three Year Period is (x) equal to or greater than an amount equal to a 10% per year compounded annual growth rate during the Three Year Period in excess of Adjusted Base Amount, and (y) less than an amount equal to a 15% per year compounded annual growth rate during the Three Year Period in excess of Adjusted Base Amount;

 

(2) 1.0 multiplied by the Adjusted Base Amount if (A) the average of the Applicable Earnings of the Business during the Three Year Period is (x) equal to or greater than an amount equal to a 15% per year compounded annual growth rate during the Three Year Period in excess of Adjusted Target Earnings, and (y) less than an amount equal to a 20% per year compounded annual growth rate during the Three Year Period in excess of Adjusted Target Earnings; and (B) the average of the NFP Retained Share of Applicable Earnings during the Three Year Period is (x) equal to or greater than an amount equal to a 15% per year compounded annual growth rate during the Three Year Period in excess of Adjusted Base Amount, and (y) less than an amount equal to a 20% per year compounded annual growth rate during the Three Year Period in excess of Adjusted Base Amount; or

 

(3) 2.0 multiplied by the Adjusted Base Amount if (A) the average of the Applicable Earnings of the Business during the Three Year Period is equal to or greater than an amount equal to a 20% per year compounded annual growth rate during the Three Year Period in excess of Adjusted Target Earnings; and (B) the average of the NFP Retained Share of Applicable Earnings during the Three Year Period is equal to or greater than an amount equal to a 20% per year compounded annual growth rate during the Three Year Period in excess of Adjusted Base Amount.

 

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For all purposes of this Agreement, the “ Base Amount ” shall be $6,140,000 and the “ Target Earnings ” shall be $13,117,500 for the Business on an aggregate basis; provided that, from time to time, NFP and a Brokerage Office may agree to adjust the Base Amount and Target Earnings of such Brokerage Office, which shall have the effect of adjusting the Base Amount and Target Earnings of the Company accordingly. After taking into account any adjustments to Base Amount and Target Earnings as agreed upon under the terms of the Management Agreement, any such adjusted Base Amount and Target Earnings shall be considered the “ Adjusted Base Amount ” and the “ Adjusted Target Earnings ” under this Agreement.

 

(b) Determination of Earn-Out Payment Stock Price. With respect to the portion of the Earn-Out Payment payable in NFP Common Stock, the Earn-Out Recipients shall be entitled (if so entitled) to receive the number of shares of NFP Common Stock equal to the quotient of (a) that portion of the Earn-Out Payment to be paid in shares of NFP Common Stock divided by (b) the average closing trading price, as reported by Dow Jones (or its successor corporation), per share of NFP Common Stock for the forty-five (45) consecutive Trading Days ending on, and including, the Trading Day prior to the date the Earn-Out Payment is due to be deposited with the Exchange Agent pursuant to Section 1.9(c) (the “ Earn-Out Payment Stock Price ”).

 

(c) Mechanics of Earn-Out Payment. On the forty-fifth (45th) day following completion of the Three Year Period (the “ Earn-Out Payment Date ”) (or if such day is not a Business Day, the following Business Day), NFP shall deposit with the Exchange Agent (i) certificates representing a number of shares of NFP Common Stock equal to the quotient of that portion of the Earn-Out Payment to be paid in NFP Common Stock divided by the Earn-Out Payment Stock Price (and cash in an amount sufficient for payment in lieu of fractional shares) and/or (ii) an amount in cash equal to the portion of the Earn-Out Payment to be paid in cash (such certificates and cash, the “ Earn-Out Payment Fund ”) and shall simultaneously deliver to the Representatives a statement (the “ Earn-Out Statement ”) setting forth in reasonable detail the calculation of the Applicable Earnings of the Business and the NFP Retained Share of Applicable Earnings used to determine the Earn-Out Payment Amount. Upon the prior written request of the Representatives, NFP shall deliver documentation reasonably requested by the Representatives in connection with their, and their advisors’, review of such information and calculations. The Representatives shall be deemed to have accepted the determinations set forth in the Earn-Out Statement unless the Representatives deliver to NFP not later than fifteen (15) days after receipt by the Representatives of the Earn-Out Statement a written notice listing in reasonable detail those items to which the Representatives object and (to the extent known by the Representative) the proposed adjustment. The Representatives and NFP will negotiate in good faith to attempt to resolve any such objections (and shall promptly provide each other with any information of documentation reasonably requested by the other in connection with the resolution of such objections), but if the Representatives and NFP are unable, within 30 days after receipt by NFP of the notice of the Representatives’ objections, to resolve all disputes, such disputes will be referred to a firm of independent certified public accountants mutually acceptable to the Representatives and NFP (the “ Independent Accounting Firm ”). The Independent Accounting Firm shall, within forty-five (45) days following its selection, deliver to the Representatives and NFP a written report determining such disputed items (and only such disputed items) and its determinations

 

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will be conclusive and binding upon the Earn-Out Recipients and NFP for the purposes of any adjustment to the Earn-Out Payment Amount. The fees, expenses and costs of the Independent Accounting Firm borne in connection with this Section 1.9 (c) shall be borne one-half by NFP and one-half by the Earn-Out Recipients, such amount to be borne by the Earn-Out Recipients by deducting such amount on a pro rata basis from the Earn-Out Payment Amount.

 

(d) Payment Procedure . The Exchange Agent shall make such payment (including any additional payment expressly required by this Section) of shares of NFP Common Stock (together with cash in lieu of fractional shares) and/or cash to each Earn-Out Recipient in the manner and at the location specified in the instrument of surrender previously delivered by each such holder to the Exchange Agent pursuant to Section 1.8(c) (unless the Exchange Agent has otherwise been notified in writing by the Representatives) and otherwise in accordance with the applicable provisions of Section 1.8 ). If NFP (i) fails to pay to the Exchange Agent (or any replacement exchange agent for the purposes hereof) any portion of the Earn-Out Payment Amount within three (3) Business Days of the Earn-Out Payment Date or (ii) is determined to owe an additional payment following determination of objections raised to the Earn-Out Statement by the Representatives in accordance with Section 1.10(c), then in either case interest shall accrue on the principal of the Earn-Out Payment Amount or portion thereof, as the case may be, and be payable (in addition to such amount owed by NFP) at a rate per annum equal to the prime rate per annum publicly announced from time to time by Citibank, N.A. at its principal office in New York City, calculated from the Earn-Out Payment Date to the date of such payment.

 

1.11 Principal Payment.

 

(a) Payment Amount . At the Effective Time, NFP shall pay to each of the principals of the Company’s brokerage divisions listed on Exhibit B attached hereto (individually, a “ Principal ” and, collectively, the “ Principals ”) a payment equal to the amount set forth opposite such Principal’s name on Exhibit E (each such payment, a “ Principal Payment ” and, collectively, the “ Principal Payments ”) which amount shall be payable to the Principals without any recourse under this Agreement. Each such Principal Payment shall be made in accordance with the following: (A) a Principal may elect to receive only NFP Common Stock (the “ Principal Stock Election ”) or (B) a Principal may elect to receive such Principal’s Principal Payment in cash (in immediately available funds) and NFP Common Stock (the “ Principal Mixed Election ”), provided that no greater than 50% of the amount of each such Principal Payment pursuant to a Principal Mixed Election shall be payable in cash with the remainder of such Principal Payment, payable in NFP Common Stock. Notwithstanding anything to the contrary herein, each Principal shall be entitled to receive, in addition to the Principal Payment described in the preceding sentence, a cash payment in an amount equal to 50% of the value of the NFP Common Stock received by such Principal pursuant to either a Principal Stock Election or a Principal Mixed Election (the “ Cash Gross-up ”).

 

(b) Determination of NFP Stock Price . With respect to the portion of any such Principal Payment payable in NFP Common Stock, the Principal receiving such Principal Payment shall be entitled to receive the number of shares of NFP Common Stock equal to the quotient of (a) that portion of such Principal Payment divided by (b) the Twenty Day Average Price.

 

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(c) Principal Elections . The Letter of Transmittal/Form of Election shall include a provision to allow for Principals to make a Principal Stock Election or Principal Mixed Election. Such Principal Elections shall be subject to the same procedures and rights as Elections made pursuant to Section 1.9 .

 

(d) Payment Procedure . At the Closing, NFP shall deposit with the Exchange Agent (i) certificates (or other appropriate documentation for book-entry ownership as applicable) representing the aggregate shares of NFP Common Stock deliverable pursuant to the Principal Elections and (ii) cash to fund payment of any cash portion of the Principal Payments and the Cash Gross-up, which, in each case, shall be distributed by the Exchange Agent to such Principals in accordance with the procedures of Section 1.8.

 

1.12 Dissenting Shares. Notwithstanding anything in this Agreement to the contrary, shares (the “ Dissenting Shares ” ) of the Company Common Stock and Company Preferred Stock issued and outstanding immediately prior to the Effective Time that are held by any holder who is entitled to demand and properly demands appraisal of such shares pursuant to, and who complies in all respects with, the provisions of Section 262 shall not be converted into the right to receive the applicable Merger Consideration as provided in Section 1.5(a) or 1.5(b) , as applicable, but instead such holder shall be entitled to payment of the fair value of such shares in accordance with the provisions of Section 262. At the Effective Time, all Dissenting Shares shall no longer be outstanding and shall automatically be canceled and shall cease to exist, and each holder of Dissenting Shares shall cease to have any rights with respect thereto, except the right to receive the fair value of such Dissenting Shares in accordance with the provisions of Section 262. Notwithstanding the foregoing, if any such holder shall fail to perfect or otherwise shall waive, withdraw or lose the right to appraisal under Section 262 or a court of competent jurisdiction shall determine that such holder is not entitled to the relief provided by Section 262, then the right of such holder to be paid the fair value of such holder’s Dissenting Shares under Section 262 shall cease and such Dissenting Shares shall be deemed to have been converted at the Effective Time into, and shall have become, the right to receive the applicable Merger Consideration as provided in Section 1.5(a) or 1.5(b) , as applicable. The Company shall deliver prompt notice to NFP of any demands for appraisal of any shares of Company Common Stock and Company Preferred Stock and NFP shall have the right to direct all negotiations and proceedings with respect to such demands. Prior to the Effective Time, the Company shall not, without the prior written consent of NFP, make any payment with respect to, or settle or offer to settle, any such demands, or agree to do any of the foregoing.

 

1.13 Adjustment to Working Capital; Retail Settlement Proceeds.

 

(a) At the Effective Time, the Company shall deposit the retail settlement proceeds held in the Retail Settlement Proceeds Account (as defined below), with the Escrow Agent into the Escrow Account. The Escrow Agent shall deposit such retail settlement proceeds into a subaccount referred to herein as the “ Retail Settlement Proceeds Escrow Amount ” and shall separately monitor and administer the subaccount holding the Retail Settlement Proceeds Escrow Amount from the General Escrow and the Special Tax Escrow.

 

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(b) At the Effective Time, the Company shall deliver to NFP a certificate signed by an officer of the Company attaching an unaudited combined balance sheet of the Business, estimated as of the close of business on the Closing Date (the “ Estimated Closing Date Balance Sheet ”), which shall be accompanied by a certificate signed by the principal financial officer of the Company (i) stating that the Estimated Closing Date Balance Sheet has been prepared in accordance GAAP consistently applied and applied on a basis consistent with the balance sheet set forth in Section 1.13 of the Company Disclosure Schedule, (ii) setting forth a calculation of the amount by which the current assets of the Business (other than the current assets described in clause (f) below, the “ Current Assets ”) on such date either exceeds or is less than the current liabilities of the business (other than the current liabilities described in clause (f) below, the “ Current Liabilities ” and such excess or deficiency, the “ Working Capital Amount ”) on such date and (iii) setting forth a calculation of the amount by which the amount of cash in the Business as of the Closing Date (the “ Closing Cash Amount ”) either exceeds or is less than the Cash Target Amount (as defined below) (such excess or deficiency, the “ Cash Difference Amount ”). Each of the foregoing calculations shall be prepared based on the Estimated Closing Date Balance Sheet. NFP shall have thirty (30) days from the Closing Date to review the accuracy of the Estimated Closing Date Balance Sheet (and any books and records of the Business). In the event that NFP determines (i) that the Estimated Closing Date Balance Sheet shall not have been determined in accordance with GAAP consistently applied and applied on a basis consistent with Section 1.13 of the Company Disclosure Schedule or otherwise contains (x) inaccuracies to the extent that estimated numbers reflected on the Estimated Closing Date Balance Sheet differ from the actual numbers as of the Closing Date determined by NFP or (y) mathematical error, or (ii) the Current Assets, Current Liabilities, or Closing Cash Amount shall not, in any case, have been determined in accordance with GAAP consistently applied and applied on a basis consistent with Section 1.13 of the Company Disclosure Schedule or as otherwise contains(x) inaccuracies to the extent that estimated numbers reflected on the Estimated Closing Date Balance Sheet differ from the actual numbers as of the Closing Date determined by NFP or (y) mathematical error, NFP may dispute the Company’s calculation of the Working Capital Amount and the Cash Difference Amount. NFP shall be deemed to have accepted the calculation of the Current Assets, Current Liabilities, Working Capital Amount and Cash Difference Amount unless NFP delivers to the Counsel for the Preferred Holders not later than thirty (30) days following the Closing Date a written notice setting forth a different amount of Current Assets, Current Liabilities, Working Capital Amount and/or Cash Difference Amount and, in reasonable detail, and a brief explanation of the basis for concluding that a different amount is appropriate and its calculation thereof (the “ Dispute Notice ”). NFP and the Counsel for the Preferred Holders will negotiate in good faith to attempt to resolve any such dispute indicated in the Dispute Notice (and shall promptly provide each other with any information of documentation and access reasonably requested by the other in connection with the resolution of such objections), but if NFP and the Counsel for the Preferred Holders are unable, within fifteen (15) days after receipt by the Counsel for the Preferred Holders of the Dispute Notice, to resolve such disputes, such disputes will be referred to a firm of independent certified public accountants mutually acceptable to the Counsel for the Preferred Holders and NFP (the “ Settlement Accounting Firm ”).

 

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The Settlement Accounting Firm shall, within forty-five (45) days following its selection, deliver to the Counsel for the Preferred Holders and NFP a written report determining the disputed items (and only the disputed items) on the Estimated Closing Date Balance Sheet (determined according to GAAP, consistently applied and applied on a basis consistent with Section 1.13 of the Company Disclosure Schedule) and its determinations will be conclusive and binding upon NFP and the Counsel for the Preferred Holders (and the former Preferred Holders) for the purposes of any adjustment set forth in this Section 1.13 , absent manifest error. In connection with the foregoing, NFP shall afford the Settlement Accounting Firm such access as reasonably required in order to make its determination. The fees and expenses of the Settlement Accounting Firm shall be borne 50% by NFP and 50% by the Preferred Holders. The Estimated Closing Date Balance Sheet either as (i) accepted by NFP, (ii) agreed to by NFP and the Counsel for the Preferred Holders or (iii) adjusted by the Settlement Accounting Firm pursuant to this Section 1.13(a), will be final and binding and will be referred to as the “ Final Closing Date Balance Sheet .”

 

(c) In the event that:

 

(i)(A) the amount of Current Assets set forth on the Final Closing Date Balance Sheet is equal to or exceeds (1) the amount of Current Liabilities set forth on the Final Closing Date Balance Sheet plus (2) $4,000,000 (the sum of (A)(1) and (2), the “ Working Capital Target Amount ”) and (B) the Closing Cash Amount set forth on the Final Closing Date Balance Sheet is equal to or exceeds (1) $4,000,000 plus (2) the amount of cash, if any, required to satisfy in full the Specified Liabilities (as defined below), (the sum of (B)(1) and (2), the “ Cash Target Amount ”), then the Escrow Agent shall, no later than five (5) Business Days following the date of determination of the Final Closing Date Balance Sheet, release an amount of cash from the Retail Settlement Proceeds Escrow Amount such that, after giving effect to such payment, the amount of the Current Assets and cash of the Business (in each case, measured at the Closing) would not have been less than the Working Capital Target Amount and/or the Cash Target Amount, as applicable, and such payment, if any, shall be made by the Escrow Agent by wire transfer of immediately available funds to an account or accounts designated by Counsel for the Preferred Holders in the Retail Settlement Proceeds Release Certificate (as defined below);

 

(ii)(A) the amount of Current Assets set forth on the Final Closing Date Balance Sheet is equal to or exceeds the Working Capital Target Amount and (B) the Closing Cash Amount set forth on the Final Closing Date Balance Sheet is less than the Cash Target Amount (the amount by which the Cash Target Amount exceeds the Closing Cash Amount, the “ Cash Shortfall Amount ”), then the Escrow Agent shall, no later than five (5) Business Days from the date of the determination of the Final Closing Date Balance Sheet, release to NFP an amount from the Retail Settlement Proceeds Escrow Amount equal to the Cash Shortfall Amount and such payment, if any, shall be made by the Escrow Agent by wire transfer of immediately available funds to an account or accounts designated by NFP in the Retail Settlement Proceeds Release Certificate;

 

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(iii)(A) the amount of Current Assets set forth on the Final Closing Date Balance Sheet is less than the Working Capital Target Amount (the amount by which Current Liabilities exceeds the Working Capital Target Amount, the “ Working Capital Shortfall Amount ”) and (B) the Closing Cash Amount set forth on the Final Closing Date Balance Sheet is equal to or exceeds the Cash Target Amount, then the Escrow Agent shall, no later than five (5) Business Days from the date of the determination of the Final Closing Date Balance Sheet, release an amount to NFP from the Retail Settlement Proceeds Escrow Amount equal to the Working Capital Shortfall Amount and such payment, if any, shall be made by the Escrow Agent by wire transfer of immediately available funds to an account or accounts designated by NFP in the Retail Settlement Proceeds Release Certificate; and

 

(iv)(A) the amount of Current Assets set forth on the Final Closing Date Balance Sheet is less than the Working Capital Target Amount and (B) the Closing Cash Amount set forth on the Final Closing Date Balance Sheet is less than the Cash Target Amount, then the Escrow Agent shall, no later than five (5) Business Days from the date of the determination of the Final Closing Date Balance Sheet, release an amount to NFP from the Retail Settlement Proceeds Escrow Amount equal to the greater of (x) the Working Capital Shortfall Amount and (y) the Cash Shortfall Amount and such payment, if any, shall be made by the Escrow Agent by wire transfer of immediately available funds to an account or accounts designated by NFP in the Retail Settlement Proceeds Release Certificate.

 

(d) After giving effect to the payments to NFP, if any, in clauses (c)(ii), (c)(iii), and (c)(iv) above, no later than five (5) Business Days from the determination of the Final Closing Date Balance Sheet, the remainder of the Retail Settlement Proceeds Escrow Amount, if any, shall be released from escrow and paid by the Escrow Agent by wire transfer of immediately available funds to an account or accounts designated by the Counsel for the Preferred Holders, on behalf of the former Preferred Holders. The parties acknowledge and agree that, notwithstanding the fact that the amount on deposit in the Retail Settlement Proceeds Account may not be sufficient to eliminate the full amount of any Cash Shortfall Amount or Working Capital Shortfall Amount, (i) recourse to the Retail Settlement Proceeds Amount shall be the sole recourse of the Company and NFP pursuant to this Agreement to reduce or eliminate any such shortfall and (ii) except as expressly provided in this Section 1.13, the Holders shall have no obligation or liability to guaranty, support or otherwise make payment in respect of the working capital of the Company.

 

(e) Upon determination of any amounts payable to NFP and/or the former Preferred Holders pursuant to and in accordance with clauses (b), (c)(i), (c)(ii), (c)(iii), (c)(iv) or (d) hereof, NFP and the Counsel for the Preferred Holders shall, within three (3) Business Days of such determination, send a joint notice to the Escrow Agent executed by NFP and the Counsel for the Preferred Holders (the “ Retail Settlement Proceeds Release Certificate ”) directing the Escrow Agent to distribute the Retail Settlement Proceeds Escrow Amount as determined in accordance with this Section 1.13 and shall include in such Retail Settlement Proceeds Release Certificate the applicable bank account(s) to which such proceeds are to be delivered.

 

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(f) As used in this Section 1.13 , (i) “ Current Assets ” shall not include the Alternative Minimum Tax Credit reflected on the Company’s balance sheet and (ii) “ Current Liabilities ” shall not include (A) the fees and expenses of UBS up to $1,500,000; (B) severance and change of control payments to W. Todd Carlisle and Keith D. Duke; and (C) any amounts required to be paid by NFP pursuant to Section 5.6(b) .

 

(g) As used herein, the term “ Specified Liabilities ” means collectively, each of the following current liabilities (to the extent not satisfied and paid in full in cash prior to the Closing Date and removed as current liabilities prior to such date): (1) any amounts owed or accrued in respect of JPSC/Windward Securities, (2) any amounts owed or accrued in respect of Collier Ventures, (3) any amounts owed or accrued in respect of 2004 Income Taxes, (4) any amounts owed or accrued in respect of the Rewards Trip, (5) any amounts owed or accrued in respect of the Gary Wright DPP and (6) any amounts owed or accrued in respect of tax liabilities resulting from the divestiture and unwinding of Nye Financial Group, Inc.

 

(h) In furtherance of this Section 1.13 , from the date hereof through the Effective Time, the Company shall hold the retail settlement proceeds in a separate account (the “ Retail Settlement Proceeds Account ”) and shall not distribute or disburse the retail settlement proceeds.

 

(i) Each of the Preferred Holders hereby irrevocably appoints the Counsel for the Preferred Holders as the agent, proxy and attorney in fact for such Preferred Holders for all purposes of this Section 1.13 and the Escrow Agreement, but solely with respect to the Retail Settlement Proceeds Escrow Amount, (including full power and authority on such holders behalf to consummate the transactions contemplated in this Section 1.13 (including receiving notices and disbursing funds received from the Retail Settlement Proceeds Amount)) and to execute and deliver the Escrow Agreement. In addition, the provisions of Sections 9.3 and 9.4 hereof shall apply to the Counsel for the Preferred Holders mutatis mutandis . In furtherance of the foregoing, the Preferred Holders agree that they shall cause the Counsel for the Preferred Holders to take any action required or advisable under this Section 1.13 ; it being understood that NFP may enforce any right it would otherwise have against the Counsel for the Preferred Holders, as if it were party to this Agreement, against any and all of the Preferred Holder’s. In the event that the Counsel for the Preferred Holders shall fail or omit to take any action it is required to take pursuant to this Section 1.13 or takes any action inconsistent herewith, the Preferred Holders shall upon notice by NFP appoint a replacement Counsel to the Preferred Holders within (3) Business Days, whom is reasonably satisfactory to NFP.

 

1.14 Certificate of Incorporation and Bylaws. The Certificate of Merger shall provide that at the Effective Time (a) the certificate of incorporation of the Company in effect immediately prior to the Effective Time shall be amended as of the Effective Time so as to contain the provisions, and only the provisions, contained immediately prior thereto in the certificate of incorporation of Subcorp, except for Article I thereof, which shall continue to read “The name

 

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of this Corporation is ‘HIGHLAND CAPITAL HOLDING CORPORATION’” and, as amended, such shall be the certificate of incorporation of the Surviving Corporation, and (b) the bylaws of Subcorp in effect immediately prior to the Effective Time shall be the bylaws of the Surviving Corporation, in each case until amended in accordance with the DGCL.

 

1.15 Directors and Officers. From and after the Effective Time, the officers of Subcorp shall be the officers of the Surviving Corporation, and the directors of Subcorp shall be the directors of the Surviving Corporation, in each case until their respective successors are duly elected or appointed and qualified in accordance with applicable law.

 

1.16 Additional Actions. If, at any time after the Merger, the Surviving Corporation shall determine or be advised that any further deeds, assignments or assurances in law or any other acts shall be necessary or desirable to vest, perfect or confirm, of record or otherwise, in NFP, its right, title or interest in, to or under any of the rights, properties or assets of the Company, or otherwise carry out the provisions of this Agreement, then the officers and directors of the Surviving Corporation shall be authorized to execute, and deliver in the name and on behalf of the Company or NFP all such deeds, assignments or assurances in law and to take all acts as are reasonably necessary, proper or desirable to vest, perfect or confirm title to and possession of such rights, properties or assets in NFP and otherwise to carry out the provisions of this Agreement.

 

1.17 Adjustments. If during the period between the date of this Agreement and the Effective Time, any change in the outstanding shares of Company or NFP capital stock, as the case may be, or securities convertible or exchangeable into or exercisable for shares of Company or NFP capital stock, as the case may be, shall occur by reason of any reclassification, recapitalization, stock split or combination, exchange or readjustment of shares of Company or NFP capital stock, as the case may be, or any similar transaction, or any stock dividend thereon with a record date during such period, the Merger Consideration payable in respect of shares of Company capital stock shall be appropriately adjusted to reflect such change.

 

1.18 Stockholders Consent; No Appraisal Rights. Each Specified Stockholder hereby acknowledges that, by delivering a Section 228 Consent and a Waiver concurrently with the execution and delivery of this Agreement, such Specified Stockholder shall not be entitled, with respect to its shares of Company Common Stock and/or Company Preferred Stock, to appraisal rights pursuant to Section 262 (or any similar right which would provide for a determination of “fair value” (or like concepts) of securities.

 

ARTICLE II

 

REPRESENTATIONS AND WARRANTIES OF NFP AND SUBCORP

 

In order to induce the Company and the Specified Stockholders to enter into this Agreement, NFP and Subcorp hereby represent and warrant, jointly and severally, to the Company and the Specified Stockholders that the statements contained in this Article II are true, correct and complete.

 

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2.1 Organization and Standing.

 

(a) Each of NFP and Subcorp is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation with full power and authority (corporate and other) to own, lease, use and operate its properties and to conduct its business as and where now owned, leased, used, operated and conducted.

 

(b) NFP and each of its subsidiaries is duly qualified to do business and is in good standing in each jurisdiction in which the nature of the business conducted by it or the property it owns, leases or operates, makes such qualification necessary, except where the failure to be so qualified would not have a Material Adverse Effect on NFP. A “ Material Adverse Effect, ” with respect to either NFP or the Company, means any change or effect that would be materially adverse to the business, financial condition or results of operations of such party and its subsidiaries taken as a whole, other than any change or effect resulting from (i) changes in U.S. economic conditions generally (except to the extent such conditions are specific to such person or its subsidiaries or have a disproportionate impact on such person or its subsidiaries, taken as a whole) or (ii) any actions expressly required under this Agreement or taken at the written direction of either NFP, on the one hand, or the Company, on the other hand, as the case may be.

 

(c) NFP has heretofore made available to the Company a complete and correct copy of the certificate of incorporation and bylaws, each as amended to date, of NFP and Subcorp. Such certificates of incorporation and bylaws are in full force and effect. Neither NFP nor Subcorp is in default in the performance, observance or fulfillment of any provision of its certificate of incorporation or bylaws.

 

2.2 Corporate Power and Authority. Each of NFP and Subcorp has all requisite corporate power and authority to enter into and deliver this Agreement and, in the case of NFP, the Management Agreement, Administrative Services Agreement and the Lock-Up Agreements and any other agreement or document entered into in connection herewith or therewith, to perform its obligations hereunder and thereunder, and to consummate the transactions contemplated by this Agreement, and in the case of NFP, the Management Agreement, Administrative Services Agreements and the Lock-Up Agreements. The execution and delivery of this Agreement, and in the case of NFP, the Management Agreement, the Administrative Services Agreement and the Lock-Up Agreements, and any other agreement or document entered into in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, as the case may be, have been duly authorized by all necessary corporate action on the part of each of NFP and Subcorp and by NFP in its capacity as the sole stockholder of Subcorp, and no other corporate or stockholder proceedings on the party of NFP or Subcorp are necessary to approve this Agreement or in the case of NFP, the Management Agreement and the Lock-Up Agreements, or any other agreement or document entered into in connection herewith or therewith, or to consummate the transactions contemplated hereby and thereby, as the case may be. This Agreement, and any other agreement or document entered into in connection herewith, has been duly and validly executed and delivered by each of NFP and Subcorp, and, assuming the due authorization, execution and delivery of the other parties hereto or thereto, constitutes the legal, valid and

 

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binding obligations of each of NFP and Subcorp, enforceable against each of them in accordance with its terms, except as enforceability may be limited by bankruptcy laws, other similar laws affecting creditors’ rights and general principles of equity affecting the availability of specific performance and other equitable remedies. Upon the execution and delivery thereof, the Management Agreement, the Administrative Services Agreement and the Lock-Up Agreements will, assuming the due authorization, execution and delivery of the other parties thereto, constitute the legal, valid and binding obligation of NFP, enforceable against NFP in accordance with its terms, except as enforceability may be limited by bankruptcy laws, other similar laws affecting creditors’ rights and general principles of equity affecting the availability of specific performance and other equitable remedies.

 

2.3 Capitalization of NFP and Subcorp. (a) As of the date of this Agreement, NFP is authorized to issue two hundred sixty million (260,000,000) shares of capital stock, of which sixty million (60,000,000) are shares of NFP Common Stock and two hundred million (200,000,000) are shares of Preferred Stock with a par value of $0.01 per share (“ NFP Preferred Stock ”), of which (a) approximately 35,751,812 shares of NFP Common Stock are issued, (b) approximately 34,655,386 shares of NFP Common Stock are outstanding and (c) no shares of NFP Preferred Stock are issued and outstanding. In addition, NFP has adopted a 1998, two 2000 and two 2002 Stock Plans. The 1998 Stock Plan and the two 2000 Stock Plans are each authorized to issue options for up to one million six hundred thousand shares of NFP Common Stock. The 2002 Stock Plans are authorized to issue options for up to five million five hundred thousand shares of NFP Common Stock in the aggregate. Furthermore, in connection with its acquisition program, NFP has agreed to grant options, under the Stock Plans or otherwise, to persons or entities that have entered into management agreements with certain subsidiaries of NFP upon, among other things, meeting certain growth targets. Each outstanding share of NFP capital stock is, and all shares of NFP Common Stock to be issued in connection with the Merger will be, when issued, duly authorized and validly issued, fully paid and nonassessable, and each outstanding share of NFP Common Stock has not been, and all shares of NFP Common Stock to be issued in connection with the Merger will not be, issued in violation of any preemptive or similar rights. All shares of NFP Common Stock to be issued in connection with the Merger will be free of liens, encumbrances, agreements and rights of any kind (except pursuant to the Lock-Up Agreements).

 

(b) As of the date of this Agreement, the authorized capital stock of Subcorp consists of 100 shares of common stock, par value $0.01 per share, all of which are issued, outstanding and owned beneficially and of record by NFP.

 

2.4 Conflicts, Consents and Approval. Neither the execution and delivery of this Agreement, the Management Agreement, the Administrative Services Agreement nor the Lock-Up Agreements by NFP or Subcorp, as the case may be, nor the consummation of the transactions contemplated hereby or thereby will:

 

(a) conflict with, or result in a breach of any provision of the certificate of incorporation or the bylaws of NFP or Subcorp;

 

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(b) violate, or conflict with, or result in a breach of any provision of, or constitute a material default (or an event which, with the giving of notice, the passage of time or otherwise, would constitute a material default) or result in any loss of any benefit under, or entitle any party (with the giving of notice, the passage of time or otherwise) to terminate, accelerate or call a default under, or result in the creation of any material lien, security interest, charge or encumbrance upon any of the material properties or material assets of NFP, Subcorp or any of NFP’s subsidiaries under, any of the terms, conditions or provisions of any material agreement or other instrument or obligation to which NFP, Subcorp or any of NFP’s subsidiaries is a party;

 

(c) violate any order, writ, injunction, decree, statute, rule or regulation, applicable to NFP, Subcorp or any of NFP’s subsidiaries or their respective material properties or material assets; or

 

(d) require any action or consent or approval of, or review by, or registration or filing with any third party or any court, arbitral tribunal, administrative agency or commission or other governmental or regulatory body, agency, instrumentality or authority (a “ Governmental Authority ”), other than (i) the Company Required Consents and (ii) those actions, consents, approvals, reviews, regulations that would not have a material adverse impact on the ability of either NFP or Subcorp to perform their respective obligations hereunder.

 

2.5 No Material Adverse Change; Absence of Changes. Except as disclosed in the SEC Reports filed prior to the date of this Agreement, since September 30, 2004, there has been no event, occurrence, change or development which has had, or would reasonably be expected to have, individually or in the aggregate, (i) a Material Adverse Effect on NFP, or (ii) a material adverse impact on the ability of NFP to consummate the transactions contemplated hereby.

 

2.6 SEC Filings; Financial Statements. (a) Except as set forth on Schedule 2.6 , NFP has filed or otherwise transmitted all forms, reports, statements, certifications and other documents required to be filed with the SEC since December 31, 2001 (collectively, the “ SEC Reports ”), each of which, as amended prior to the date hereof, has complied as to form in all material respects with the applicable requirements of the Securities Act of 1933, as amended (the “ Securities Act ”) and the rules and regulations promulgated thereunder, or the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, each as in effect on the date so filed. None of the SEC Reports contained, when filed, as amended prior to the date hereof, any unt